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Last week JP Morgan (NYSE: JPM) and Wells Fargo (NYSE: WFC) announced upcoming dividend increases for the 2nd quarter of 2014. While the yields remain modest, these increased dividends could be a sign of even more growth to come.
JP Morgan will raise its annual dividend by 5.3% to $1.60 per share. The ex-dividend date is tomorrow, so you have to act right now to take advantage of this dividend increase.
Wells Fargo’s dividend hike is more significant. In early May the company will increase its annual dividend by 16.7% to $1.40 a share. Interestingly, that increase puts Wells Fargo’s annual dividend $0.04 ahead of what the bank was paying when it had to cut its dividend during the financial crisis.
In addition to these dividend hikes, both banks are aggressively repurchasing shares.
JP Morgan could repurchase $6.5 billion worth of shares by the end of the first quarter of 2015. The overall plan means that JP Morgan would return$12.5 billion to investors in the next year.
This is JP Morgan’s highest payout since the economic downturn of 2008, and just less than the record payout of $13.2 billion in 2007. At current market prices, the repurchase plan should reduce the number of JP Morgan’s outstanding shares by almost 3%.
Wells Fargo is also increasing buyback of its stock.
The bank’s Board of Directors has approved the buyback of an additional 350 million additional shares. This buyback should reduce the number of Wells Fargo’s outstanding shares by roughly 6.6%.
JP Morgan’s P/E ratio is currently 13.99. Wells Fargo sports a P/E ratio of 12.76. Compared with the 19.80 P/E ratio of the S&P 500, these banks are both clearly trading at a significant relative discount. This fact coupled with their dividend increases and stock buybacks make both banks attractive investments.
Clearly big banks like JP Morgan and Wells Fargo have been a polarizing investment topic since the financial crisis of 2008, but there is a lot of value to be had here.
The combination of inexpensive stock, dividend growth, and aggressive share buybacks could be a recipe for strong profits in 2014.
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